They would be fine if you could get an inflation linked annuity at 5% (LTA multiplier of 20) or 6.25% (AA multiplier of 16). This is massively unfair to the defined contribution sector. The system is skewed in favour of public sector pensions but nobody in a public sector pension scheme gets that
1 Like
Very sad this may cause her to change career. As a partner she does of course have to pay employer and employee pension contributions which comes as a bit of a shock too
1 Like
The debate is (in the main!) that annuity market yields (bought say from a DC pot) would require a fund 30+x the generating pension sum, whereas the HMRC notional treatment is ~20x i.e. the DB element is being massively undervalued and, ergo, under-taxed. From all Iâve read, the NHS scheme which is involved does appear to be super-generous in todayâs world.
Of course, what inflation indexation/protection is involved once the pension is triggered also enters the valuation aspect.
Pension workings are also a major issue in the corporate world, as quoted Plcs only undertake an actuarial review every 3/4 years, and the workings are done on a âgoing concernâ basis of the Plc. If the pension benefit packages involved were costed-out in the wider independent provider market, the costs to provide would be substantially more.
2 Likes
Yes, the fun and games of self employment, combined with a level of mess and complexity which the NHS impose, is mind boggling. When she was on maternity leave she had to pay a locum far more than she earned herself to cover for her, as the shortage of GPs has pushed up the market rate for locums, driven by agencies who employ them.
1 Like
My wifeâs practice is a training practice and in the cohort of trainees three years ago I think 80% were planning on working locum. A vicious circle. Still, only three years until my wife retires!
2 Likes
It would have been far more sensible to seer up a bespoke scheme for doctors, as was done for judges I believe, and to leave the allowances as they are. Doctors are trained at a huge cost to the state and need to remain in work as long as they wish, without having to retire early as a result of oddities in the tax system.
5 Likes
Perhaps, but of the many things which can be said in response (in a non-political context) is that such generous arrangements donât exist now in the private sector (due to cost), so why should one segment (another one) of society be given preferential treatment?
Perhaps, an equally valid solution would be to trim the benefit?
2 Likes
The reason this is a problem for doctors in particular is that they are not allowed to opt out of the NHS pension scheme if they hit the limit. A simple change to that rule would be enough. They could then build their own (non-pension) savings instead if they want to save more beyond the limit - that may not attract tax relief, but then it wouldnât be taxable in retirement either.
2 Likes
The problem is that so many public sector jobs are underpaid and over pensioned. Most of these pensions are âunfundedâ (i.e. defined benefit) and guarantee future income at far more generous levels that private sector pensions. This effectively shifts the cost of employing public sector workers into the future and the cost (of paying for it) onto future generations of tax payers.
Most of the private sector companies that used to offer such schemes and have long since closed them as the cost of providing them was so high and uncertain. Only a government could keep these sort of pensions going as, unlike companies, they donât need to pay for the guarantees theyâre giving, thatâs down to taxpayers. Itâs a great wheeze.
2 Likes
Itâs worth pointing out that the LGPS is a fully funded scheme, unlike that for the NHS and civil servants. Itâs long been my view that levelling up should apply to all pensions, rather than a race to the bottom. Just as the public sector could be said to be underpaid and overpensioned, some of the private sector could be said to be overpaid and underpensioned. Itâs all about whether one wants jam today or tomorrow.
4 Likes
That sounds odd to me. Are you sure? They can certainly opt out, though there may be something that restricts opt out if the limit is reached.
Thatâs very much open to debate - stats suggest the ave in the public sector is higher but I suspect this is skewed by gig-economy jobs et al. But, per @HungryHalibut 's post above, itâs really all a minefield, and has really only come in focus the last 14 years or so, when annuity rates have crashed for reasons we all know. Yes, another side-effect of âcheap moneyâ and the reluctance of governments to issue long dated gilts which are required by the annuity market.
But, the surprising aspect to me, is that while some of the public sector schemes have been re-cut, with new arrangements applying from x-date, some clearly remain far ahead of private sector terms. Got to stop here.
And âmoney illusionâ, as itâs known in economics, has been seized upon by some. Got to stop here too.
Had a quick look. You can opt out. The main problem of opting out is after a year you would lose the death in service benefit which is 2 yearsâ salary. This might a significant difficulty for many people.
There was certainly discussion between the BMA and NHS about allowing people to opt out. Itâs possible that this is now available, as the powers that be were under pressure to do so in order to reduce the exodus of medics from the NHS. As RWC says, losing the death in service benefit then becomes an issue. Thatâs an awfully large pension pot that could potentially vanish if you get hit by a bus.
Hit by a bus. Where would you spend it?
In my daughters case it it would go to her husband to support him as he unexpectedly became a single parent.
1 Like
Indeed. Forgive my flippancy.
So was it always comparatively generous, or in the past were you able to buy those kind of annuities?
I guess the disparity is in terms of the âdefined benefitâ being set out when the employee takes out their pension, at the start of their âinvestmentâ, whereas buying an annuity happens at the other end for standard pension pots.
In terms of public sector pensions they are clearly not all the same, and I suspect those with public sector pensions know less about private sector pensions and vice versa as they will try to learn about what applies to them.
I was going to mention the âjam tomorrowâ aspect of NHS pensions which is how they were âsoldâ in the past.
I entirely agree, many public sector pensions will have changed significantly over the past few decades, and I dislike the reference to âgold-platedâ pensions as it is so divisive and linked to politics of envy - we should strive for all to have decent pensions not make the pensions of many in the public sector who are low paid even worse.